Smaller firms want slice of audit pie

Local accounting firms have picked up the call from their European counterparts who called for changes to the audit market, arguing regulatory intervention is needed to dilute the power of the big four accounting firms, especially in the auditing of large listed companies.

“We need more competition and less dominance by the big four," said BDO national chairman
Tony Schiffmann
, who has been vocal on this issue for some time and is urging regulators to examine it properly with a view to substantive change.

He said that the Australian Securities and Investments Commission (ASIC) was reviewing audit efficiency, competition and consolidation in Australia, but the issue should be given much higher priority and the strong messages coming out of the European Commission (EC) should not be ignored by our regulators.

“Consolidation and lack of competition is a high-risk situation. Imagine the damage another [Arthur] Andersen-style collapse would have on the global financial system," he stated, adding that “the analogy that they are too big to fail has got no credence".

In Europe, BDO, Grant Thornton, RSM International and Mazars issued a joined statement calling for intervention in the audit market, following the EC’s green paper, Audit Policy: Lessons from the Crisis.

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The four backed the EC’s review of the audit profession, which criticised the high degree of concentration in the listed companies audit market

Referring to the continuing acquisition of smaller firms by PwC, Deloitte, Ernst & Young and KPMG, Mr Schiffmann said the trend for the big four getting bigger while the number of competitors was getting smaller, was going the wrong way.

In his view, not only was it an issue for ASIC, the fact the European Union’s internal markets commissioner was flagging his involvement made it likely that the Australian Competition and Consumer Commission should consider getting involved.

He called for:

•A ban on lenders and insurers stipulating the use of big four firms for audit and other services in contracts. “There is a bias, so people do favour the big four when other firms have the capability," Mr Schiffmann said.

•A debate about rotating auditing firms for large companies. Audit partners are now rotated about every five years.

Other Australian firms support most of these points.

The chief executive of Grant Thornton in Australia, Robert Quant, echoed criticism of the anti-competitive nature of lenders and insurers stipulating the use of big four auditors.

“It’s wrong for us to be told not to compete when we have the capability," he said.

He also agreed that audit committees should regularly assess appointments and that big four acquisitions could reduce competition.

However, Grant Thornton has yet to assess the suitability for the Australian market of joint audits.

RSM Bird Cameron’s head of assurance and advisory, Simon Cubitt, also has concerns about the dominance of the big four firms, although the European stance is shaped by the impact of the global financial crisis and the significant loss of shareholder capital.

While so-called mid-tier firms undertook audits of ASX 100 companies, he suggested that joint audits of big corporations like banks or large resource companies might be impractical in the short term as the firms sought personnel beyond what they were now undertaking.

Locally, BDO is the sixth largest firm, Grant Thornton the seventh and RSM Bird Cameron the 10th, according to BRW’s ranking of the top 100 firms by fees. William Buck, which ranks 17th, is associated with Mazar Praxity, a global alliance of accounting firms.

A spokesman for the ACCC said that the issues raised in Europe “are not on our radar."